Forex trading is the purchase of one currency and the sale of another at the same time. When you trade in the forex market, you do either selling or buying currency in pairs. And as the value of one currency increases or drops concerning another, to make profits, traders decide to either buy or sell currencies. In the foreign exchange market, which is open from Monday to Friday, currencies are typically traded. And the vast majority of FOREX trading activity occurs among institutional traders, such as bank employees, fund managers, and MNC companies.
Why forex trade matter to Ordinary individuals?
While in the forex market, the ordinary investor generally shouldn’t dabble but what happens there affects us all. The spot market’s real-time operation will influence the price we pay for exports and will cost higher to travel overseas. For example, as the U.S. dollar’s value increases compared to the euro, going overseas would be easier, and you will purchase more manufactured goods. On the other side, it would be more difficult to fly overseas and buy goods as the dollar weakens.
Risks associated with forex trading
As everything has an advantage and disadvantage as well, the same is the case with forex trading. Though forex trading has many advantages, which you might be aware of, do you know the disadvantages of forex trading? If not, then below are some of the risks associated with FOREX trading:
- Risk of increase or decrease in Interest Rate- A variation in a country’s interest rates has an impact on currency exchange rates. As if the interest rates of a nation were to grow, the currency would rise due to an increased inflow of deposits in the reserves of that country. Alternatively, if interest rates decrease, as investors tend to withdraw their savings, their currency will weaken.
- Inadequate accountability- One actually trades against practitioners due to the deregulated existence of the forex industry dominated by brokers, and broker-driven means that it will not be fully open to the forex industry. As given only by his chosen dealer, a trader may not have any influence on how his trade order is met or may get restricted views on trading quotes. An easy alternative is to deal only with regulated brokers who come under the control of broker regulators.
Now, as you know, some of the risks associated with forex trading, so hopefully, some of these risks can help you in deciding whether you should do forex trading or not.